I had a call last week from a woman who wondered where she could find out if certain homes for sale were approved for FHA financing. As I talked to her about the fact that, for the most part, it takes an appraiser to determine whether or not a home qualifies, I tried to explain what she would need to look for so she could avoid paying for appraisals on property that may not qualify. It occurred to me that there was a good blog post in that explanation so here it goes!
FHA appraisers do a different type of appraisal than appraisers for conventional loans. They are more concerned with the health and safety of the borrowers. They look at the standard things that all appraisers look at, and they take it a little further. FHA is not only concerned with the property value but is also concerned with things like handrails on steps, broken windows, lack of screens, evidence of rodent infestation and other issues that don’t affect a normal appraisal to the same degree. If the house was built before 1978 and may have the potential for lead based paint, the FHA appraiser looks for peeling paint. The FHA appraiser needs to see that the bedrooms have egress in case of a fire, the windows have to work and if there are burglar bars they need to have the code approved methods of opening them from the inside in case of a fire. They want to see smoke detectors. The FHA appraiser needs to see window screens if there isn’t central air conditioning. They look at the remaining life of the roof and the furnace and hot water heaters and want to see a stove in the kitchen. The utilities have to be on during the appraisal and they check that the various components are working. The appraiser looks for evidence of environmental contaminants like asbestos and mold. The FHA appraiser looks for earth to wood contact and other evidence of termites.
So for the most part, the home has to be livable. If the carpet can be cleaned or the house needs paint to make it clean and fresh, this will not generally be enough to cause the appraiser to require that the work be done before closing (or after). If you want to read the actual FHA appraisal guidelines you can see an article from HUD here. The basic HUD website can be found here and the FHA Appraisal page has an overview of the entire process.
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I had a contract with a person I was selling my home to in December 2010. This was a contract using an FHA loan and the appraisal was 260,000. The contract fell through because they wanted me to fix the roof. Since they wanted me to lower my house by 18,000, I decided to get out of the contract by not fixing the roof and fixing it later for a better buyer.
So, now the roof is fixed and the kitchen completely renovated (granite, ceramic floors, new maple cabs) and I have a new buyer that will pay my asking price of 280,000. they did their own appraisal, and it was appraised under the value of short sales in the neighborhood. It now appraised for 225,000????? I have been in homes that were deplorable and sold for higher.
At this point, I think something fishy is going on. Is it not true that the first appraisal that was done less than 6 months ago has to be used and these buyers are obligated to buy my house. The only contingency for this deal was the appraisal.
Please help. I have a 15,000 deposit on a new home that is being built and we close in less that 7 weeks and I wont get my deposit back if we don’t close.
Thank you so very much.
Is this also an FHA loan? What did you mean by a private appraisal?
Sometimes you can appeal the appraisal, send the first appraisal to the manager of the second company. In order to appeal, the buyer usually has to be on board though, since its their appraisal that you are appealing.
How the contract was written will dictate how the appraisal is handled. If you have the right to contest it or get another appraisal to replace it, it would be spelled out. Otherwise you have to appeal to the good graces of the other party. Don’t let them know you have a deposit on a purchase at stake.
Do you have an agent representing you in this? How did you get non refundable earnest money on your next purchase before your current home sale closed?
Rhinne,
The other point that I should have made in my last comment is that the FHA has a requirement that the property appraise for the full sales price or that the buyer not be required to close (and not suffer any penalty), so the 260K appraisal would not have helped you in a 280K sale anyhow. I have heard that that 6 month rule has been relaxed to 90 days, but I am not sure if that passed across the entire country. As usual I have to point out that I am not an FHA appraiser or lender, I am a Realtor expressing only an opinion. No warranties expressed or implied.
I’m a broker in the New Orleans area. I was moved by your problem. How’s it going? I dont have any specific help for you, but what do you mean by “they did their own appraisal”? Are they buying with cash and did not need an appraisal?? Im confused as to what that means. Obviously, if the sale was contingent upon an appraisal, and they were borrowing any money at all, it would be appraised by a lender’s order and not ordered by the buyer.
If they are buying with cash and made the contract contingent upon appraisal, then ordered their own, then yes, this is extremely fishy. But i think you could have smelled that fish before signing.
It might not be too late to insist on a randomly selected appraiser from the pool. Is this involving an agent? or By owner?
I wish you the very best. Hope it works out. Let us know how it’s going.
My husband and I are trying to buy a house there are some things were not sure of. Does anyone know if waterproofing the basement is a USDA requirement? We will get it done after we get the house but we cant buy unless its approved.
Thank You!
I had an appraisal done 3 years ago and got a loan from the Government. The guy came from Landsafe and finally saw his report. He makes false statements about the basement (where he refused to go) and how to get into it. He never looked at the attic so he had no way of seeing the condition of the roof which had to be replaced immediately. A guy came to inspect my well, did not inspect it. Appraiser said he did not end him and told me not necessary because “well water is better then city water.” I should have simply cancelled the application for the loan. I needed it to keep my home (HECM loan) and had no place to go. I took out the equity to fix the house but only had $25K to work with. The home was valued at $225. I paid off $88K that I owed and the bank kept the rest. The bank that is now involved is not the original one that gave me the loan but that is odd because the bank I have now already owned the old bank. I have lots of questions about my inspector, about why he did not care about 1967 heater, 1926 windows, a 1926 roof that had to be replaced, plaster damage in ceilings due to leaks, lead paint, 1957 applicances, and gas applicances vented into a working fire place. Lead soldier on pipes, bad electrical service. I used up my savings and equity to try and fix these things because I was told by broker once they were fixed, I could have my home reappraised and it would be worth more. I hear the bank owns the company that sent the appraiser and the contract I have states that my house was in perfect condition. Be careful when you get a HECM because Senior Citizens are like dead pray on the road while the vultures circle above. In the end, with the bank doing bad things to make my life very hard — like paying taxes not due and then harrassing me, taking money I send them and giving it to HUD for mortgage insurance which was already pre-paid at time of loan, the nightmare goes on and I cannot take it any more.
Dan, We had a FHA appraisal done two weeks ago and are only a week away from our agreed closing date. When ever we call they say it didnt come yet and they don’t know why and they leave it at that. How do i force the issue with out getting shoved on the back of the stack. Ever thing else to that point has been completed with no problems. Please help.
I live in South Carolina and I am trying to purchase a home. The home it self was $127,000. I went in at 125,000 and the seller agreed with the deal. I also got an insprection and all the necessary things in order to purchase the home. I just found out that the lender appreaised the house at 140,000 and the deal feel through. I was told(not by her) but the reailter she said that is over the amount of the FHA guidelines. I want to know if this is so. The reason I was asking was because during the process of waiting I would call her with general questions and she would never returned my calls. I have started the process ever since April and I have called her may have called her about 10 times with questions and she has only called me back once. I was able to talk with her another time and that’s only because she answered the line I called. She called me this past week to get my go-ahead on a situration regaurding the house and I just found out this week that it feel through. I am confused because she went to see and inspect the house in May, so I am pretty sure she had an idea of what it was going to be appraised for but she did not call me. My realtors also have a hard time getting in contact with her. I am also confused as to why she did not contact me about the appraisal.
Been approved for FHA mortgage. Appraisal came in at 150k. Banks are saying the appraisal is unacceptable. The appraisal report has 30 to 32% adjustments on it. The purchase property has 7.45acres. The appraisaer had to make adjustments due to really not having any comps that were similar in the area. Property sat on market for about year and half, price was dropped before my offer. advice from LO to ask sellers for reduction in price to 130k ,which is were the comps are in range at. Comp1 125,000 1.21 acres appx Comp2 115,oo 0.33 acre appx Comp3 110,000 3.72 acres appx? Is this property over priced? Should I have to pay for another appraisal or should sellers and thier listing agent, to prove value?
This was a contract using an FHA loan and the appraisal was 260,000. The contract fell through because they wanted me to fix the roof. Since they wanted me to lower my house by 18,000, I decided to get out of the contract by not fixing the roof and fixing it later for a better buyer.
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I’m a little nervous reading this. I am in MA and am in negotiations for a short sale home.
We had an inspection already, and saw some mouse/rat droppings (noticed rodent infestation) but he said because nobody is in the house they aren’t scared away.
More importantly, the roof is old but we were told we could probably get a few more years out of it. It’s not bad but yes it’s old.
Also, there are NO appliances in the kitchen– only a dish washer.
Also a few windows are non functioning, such as, 2 are broken, all the basement ones are boarded up, and a few windows are calked closed.
Did we waste our time with this property? Because we had no idea FHA had such guidelines until now.
However, the realtor helping us said that she has seen a property just like that get approved for FHA… could that really be so?
Other than the roof, we plan to replace windows and add appliances before even sleeping in that house.
Well it will be up to the appraiser. I have seen them overlook cracked windows but not broken windows. You might want to sweep up the rodent droppings before the appraiser gets there. There does not seem to be a uniform standard that they follow. I have seen some homes come back with required repairs and others not. A stove has been required on many appraisals I have been involved with. If there is a space for a dishwasher, you have to have one.
At the end of the day, they will come back with required repairs and if they are done before closing, that will be sufficient.
I appreciate your response, thank you!
I need to leave a comment your statement (FHA appraisers do a different type of appraisal than appraisers for conventional loans. They are more concerned with the health and safety of the borrowers. They look at the standard things that all appraisers look at, and they take it a little further. FHA is not only concerned with the property value but is also concerned with things like handrails on steps, broken windows, lack of screens, evidence of rodent infestation and other issues that don’t affect a normal appraisal to the same degree.)
These are No longer valid HUD /FHA issues, read the Letter December 19, 2005
MORTGAGEE LETTER 2005-ML-48 changes the hud hand book 4150
The appraisers and underwriters should read see
http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4150.2/41502appdx1HSGH.doc
I have another question related to FHA loans. I have listed my home and accepted an offer from a buyer approved for an FHA loan. The buyer wanted to have the home appraised prior to an inspection, which I agreed to through my realtor’s purchase agreement. The bank scheduled the appraisal, the appraisal was conducted, and the results came back so that the home was appraised higher than the asking price. When that information came back to the bank, however, the bank admitted that they made a mistake and had a conventional loan appraisal done, and not one for FHA. The appraiser who did the appraisal did not do FHA appraisals and now the appraisal is not acceptable. My concern is, obviously, that another appraisal will be done by an FHA approved appraiser, and will not appraise for as high as the one just done. Is there any recourse if I lose the sale as a result of the mistake the bank made?
In my opinion you probably wouldn’t. The offer is contingent on an the buyer getting an FHA loan and the standard forms protects the Buyer from any loss if the property does not appraise (by an FHA approved appraiser), right up to the closing. It depends on whether you used the standard forms, of course and my opinion is just that… I don’t really see why you would have recourse, unless you paid for the first appraisal, and then perhaps you could get your money back.
Dan,
We currently have an accepted offer on a Fannie Mae home. Sometime between when we made out initial offer and our accepted counter, Fannie had the carpets removed from the home. We planned on replacing the filthy carpets anyway, but now it is being suggested that without them, it will not be eligible for an FHA loan. Now that there is only bare subflooring and concrete, will the home qualify for an FHA loan anymore? If not, what is the likelihood that we could negotiate carpet replacement with Fannie Mae if it is a lender requirement and they removed it after our initial offer? Any input would be appreciated. Thanks so much!
Sorry that I missed this post when it came through! I may be too late on this, but I would try to get them to replace it. You may be able to go with a HomePath renovation loan and get the carpet replaced, and the cost added to the loan, if they refuse. There are some benefits to the Homepath product. The rates can be competitive with FHA, they have similar down payments, but Home Path does not have MIP (mortgage insurance).
My daughter bought her condo 2 years ago to date, her furnace broke down. She bought under a fha loan, is there provisions that require that the furnace should been in working condition for longer then this?
FHA loans do not have a provision for HVAC systems to work for any amount of time past closing. The appraiser checks to make sure that it is working at the time of the appraisal, but FHA does not offer any warranty on anything. There are independent warranty companies which will warrant the mechanical systems in your home, for a fee, but once the furnace has broken down it is too late for the third party warranties.
I am purchasing a home with a USDA loan. The house is in excellent condition however one of the 2 AC units appears to not be working. Also the electric water heater needs to be replaced. The carpets are stained but no holes or tears. Also there are some drywall patches on the walls that are not painted where they patched some scratches. The home is a forecloser being sold as is. Will I need to repair any of these prior to closing on the loan or can I do it afterwards or do they require estimates and tie it into the loan? Also which ones do I even need to be concerned with? Also all the windows are in great condition and open, close, and lock but a few are missing screens. I just want to know what to expect. I will have some extra money in a few weeks to make some of these repairs if needed, but the AC unit worries me as I don’t know if it needs to be repaired or replaced. Or am I ok because one of the 2 units works? They are on separate thermostats.
Thanks!
I am sorry, normally I get an email when someone posts on my website but that function quit working and suddenly I realized that I had unanswered posts.
It may be too late for this, but you can get a 203K loan to address repairs, if the appraiser requires them. Stained carpet probably won’t be an issue unless it is really terrible or mold. Typically they don’t test AC in the winter if the temp is below 50, so that might not be an issue. Some lenders ask for the inspection, so it may come up, then you can go to a 203K.
This is all freaking me out. We just applied for an FHA loan on a house that we plan to renovate–new floors, appliances, electrical, paint and/or replace dry wall (this is a pre-1978 house). Why does all this have to be done before the mortgage is approved?
FHA doesn’t want to make loans on houses that need work. The way around it is to get an FHA 203K loan that will finance the repairs. The lenders who do those loans have someone who comes out and monitors that the work is being done correctly and cuts checks to the contractors as they complete the various phases. They oversee the jobs and make sure that the contractors are licensed and insured etc.
The reason is because there are lots of foreclosures out there where the homeowner took on a job that turned out to me harder and more expensive than they thought, they couldn’t finish and the lender gets the property back with work half completed.
Dan,
I recently put down an offer for a house that was bank owned by BOA. BOA accepted my offer and we are moving along in the process. We had our inspection done yesteday, and the inspector came back and notified us that not only was the roof in poor condition, but also there were small signs of mold in the basement and the water heater needed to be replaced. We informed our realtor of this issue and he seemed to think it was going to be a huge problem considering we are taking out an FHA ARM loan. However, after speaking with our mortgage broker, he seems to think that when we sound out the actual appraiser, he will go back to the bank to inform them that this house cannot be FHA approved unless these repairs are made and that sometimes the bank will fix these issues (even on foreclosures) because they want to get rid of the house. How does this typically work? Is the bank responsible for getting the house in shape to be approved for an FHA loan? or will we need to make the improvements ourselves? And if that’s the case, how does this work? Do we repair the roof ourselves and replace the water heater then get the house appraised again? Sorry for all of these questions but I am curious to hear your thoughts.
Thanks!
Jessica
The bank is not responsible for repairs but I think that more and more they are doing some repair to get the house sold. It is definitely worth a shot. Another option would be to switch to an FHA 203K loan which would let you finance the repairs. Only some FHA lenders do these type of loans and the downside is that the interest rate may be a bit higher.
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